Throughout 2014, we've seen mortgage rates stay and have a cup of coffee around the low 4% range. However, with the fed looking to raise mortgage rates in the near future, your cost to borrow funds for home purchases may be in jeopardy of rising.
A majority of economists have come to the consensus that the average 30-year fixed-rate mortgage could reach 5% by mid-2015, The New York Times reports. On Friday, Freddie Mac reported the 30-year fixed-rate mortgage averaging 4.2 %. This is largely attributable to the Federal Reserve’s plan to withdraw from buying mortgage-backed securities.
Economists suggest that while a 5% mortgage rate is still historically low, such an increase still has the potential of reducing buying power in a home purchase. For example: According to some estimates, a 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. Of course that type of increase is very loosely applicable to the Gainesville market.
But even in the case of rate hikes up to 7%, the analysis found that homes remain affordable overall. From 1985 to 2000, home owners’ housing costs—including the principal and interest on a median-priced home—accounted for 22% of a home owners’ median household income. However, for comparison, today’s households are spending about 15 % of their median income on a median-priced home.
For further details, check out this recent article from the NY Times:
When Mortgage Rates Rise
Mortgage rates have remained relatively low this year, and little changed, despite previous predictions of an inevitable rise. Borrowers, though, may be wondering how much longer this environment can last.
At this point, waiting for the rise in interest rates “is a little bit like ‘Waiting for Godot,’ ” said Stan Humphries, the chief economist for Zillow, an online real estate information service, referring jokingly to the Samuel Beckett play named for a character who never shows up.
Mr. Humphries and other economists are now predicting that the average 30-year fixed-rate mortgage will hit 5 percent by the middle of next year, partly as a result of the Federal Reserve’s planned withdrawal from buying mortgage-backed securities. Last week, the 30-year national average was 4.28 percent, according to HSH.com, a publisher of loan information.